BILL ANALYSIS                                                                                                                                                                                                    




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                           900 (Alquist and Steinberg)
          
          Hearing Date:  5/17/2010        Amended: 5/5/2010
          Consultant: Katie Johnson       Policy Vote: Health 5-0
          _________________________________________________________________ 
          ____
          BILL SUMMARY:  SB 900 would establish the California Health  
          Benefits Exchange.
          _________________________________________________________________ 
          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2010-11      2011-12       2012-13     Fund
                                                                  
          Initial start-up costs   unknown, likely in the millions of  
          dollars       General/*
                                   annually through January 1, 2014Federal

          Ongoing CHBE administration     unknown, likely to start January  
          1,            Special**
                                   2014, in the tens of millions of  
          dollars annually

          CDI oversight, filing review    approximately $160 ongoing  
          onceSpecial***
                                   CHBE is operational

          *Unspecified amount of federal funds available likely in 2011;  
          General Fund pressure if total expenses not met by federal funds  
          grant
          **California Health Benefits Exchange Fund-likely be fully  
          supported by an assessment on consumer premiums
          ***Insurance Fund
          _________________________________________________________________ 
          ____

          STAFF COMMENTS: This bill meets the criteria for referral to the  
          Suspense File.
          
          This bill would establish the California Health Benefits  
          Exchange (CHBE), within the California Health and Human Services  
          Agency (CHHS), with an appointed governing board to purchase  
          health insurance on behalf of Californians up to 400 percent of  










          the federal poverty level and employees of small businesses.  
          Federal law requires states that elect to establish exchanges  
          either through a governmental entity or a non-profit  
          organization, in lieu of the federal government establishing it  
          for a state, to have the exchange be operational by January 1,  
          2014.

          Start-Up Costs
          
          Initial start-up costs would likely be in the millions of  
          dollars for staff and would, in addition to the ongoing duties  
          of the exchange, probably include information technology (IT)  
          investments that could be in the millions of dollars in  
          procurement. Federal law requires exchanges to, among other  
          duties, 1) certify qualified health plans, 2) provide for a  
          toll-free consumer hotline, 3) maintain a website with  
          standardized comparative information on such plans, 4) assign a  
          rating to each qualified health plan, 5) present health plan  
          information in a standardized format, 6) establish a calculator  
          to determine the actual cost of coverage, 7) grant a  
          certification attesting that an individual is exempt 
          Page 2
          SB 900 (Alquist and Steinberg)

          from the individual responsibility requirement. Several of these  
          requirements would likely be instituted and met during CHBE  
          start-up and some would be maintained as part of the exchange's  
          ongoing operations. 

          In order to meet these requirements, CHBE could be able to  
          phase-in staff for each aspect of the exchange as it prepares to  
          be operational January 1, 2014, which would minimize one-time  
          start-up costs. CHBE start-up staff would likely include  
          actuaries, attorneys, accountants, IT consultants, and market  
          consultants. The creation of CHBE would also increase the  
          oversight responsibilities of California's two health care  
          coverage regulators. The California Department of Insurance  
          (CDI) would likely need up to two staff counsels to review a new  
          group of insurance policies at an ongoing cost of approximately  
          $160,000 annually once CHBE is operational. There could be a  
          similar impact on the Department of Managed Health Care (DMHC)  
          in the hundreds of thousands of dollars, but it is unknown at  
          this time.

          In addition to meeting the federal exchange requirements  
          mentioned above, this bill would require CHBE to negotiate and  










          enter into contracts with carriers. This would make CHBE an  
          "active" purchaser of health care coverage, similar to the  
          current functions of the California Public Employees Retirement  
          System (CalPERS) and the Managed Risk Medical Insurance Board  
          (MRMIB) on behalf of public employees and subscribers to the  
          Healthy Families Program, the Access for Infants and Mothers  
          (AIM) program, and the Major Risk Medical Insurance Program  
          (MRMIP), respectively.

          Federal law and this bill also require state exchanges to enroll  
          an individual in state and local public programs if he or she  
          were found to be eligible for those programs through the CHBE  
          application process. In California, this would include Medi-Cal,  
          the Healthy Families Program, and county-administered Healthy  
          Kids programs. 

          Enrollment systems currently exist within California for these  
          programs. CHBE would need to be able to interface with public  
          programs' enrollment systems to meet this bill and federal law's  
          requirements.

          ABX4 7 (Evans), Chapter 7, Statutes of 2009, permitted the  
          Department of Health Care Services (DHCS), the Department of  
          Social Services (DSS), and the California Health and Human  
          Services Agency (CHHS) to develop a statewide eligibility and  
          enrollment determination process for Medi-Cal, California Work  
          Opportunity and Responsibility to Kids Program (CalWORKs), and  
          the Supplemental Nutrition Assistance Program (SNAP). Per ABX4  
          7, the procurement and implementation of the "centralized  
          eligibility" process is contingent on Legislative approval of  
          the comprehensive process plan and an appropriation for its  
          procurement. 

          Governance and Ongoing Administration

          As noted above, CHBE's governance structure and functions would  
          likely be similar to that of two existing California  
          agencies-CalPERS and MRMIB, which negotiate and purchase  
          benefits for approximately 1.3 million and 900,000 individuals,  
          respectively. CalPERS' health benefits administrative budget is  
          about $26 million annually and is fully 
          Page 3
          SB 900 (Alquist and Steinberg)

          funded by a 0.43 percent assessment on premiums. Existing law  
          limits the assessment to 2 percent of premiums. MRMIB's state  










          operations budget is about $12 million annually and is funded by  
          a combination of state and federal funds.

          Based on a recent study, there would likely be 8.4 million lives  
          eligible for the CHBE for which it would actively purchase  
          health care coverage. If administrative costs were based on the  
          number of lives, costs to set up and to maintain the exchange  
          could range from approximately $12 million to $220 million  
          annually. The high end of the estimate is unlikely to be  
          attained due to economies of scale.

          According to the testimony of Jon Kingsdale, the Executive  
          Director of Massachusetts' state exchange, the Health Connector,  
          which was established in 2006, the state has experienced  
          economies of scale in administrative costs. In his testimony at  
          the California Senate and Assembly's Joint Hearing on Health  
          Reform on May 12, 2010, Mr. Kingsdale stated that as the Health  
          Connector's enrollment grew, the cost per enrollee went down.
          
          Federal Funds Support

          PPACA states that the federal government will award grants to  
          states beginning in 2011, not later than 1 year after PPACA's  
          enactment, in annual, unspecified amounts to assist states in  
          establishing state Health Benefits Exchanges. If the federal  
          funds do not cover the costs of implementation prior to the  
          collection of fees on premiums, there could be millions of  
          dollars in General Fund costs to make up the difference. By  
          January 1, 2015, the federal government expects exchanges to be  
          fully self-funded. Additionally, if a state chooses not to  
          establish its own exchange, the federal government would run the  
          state's exchange either directly or through a non-profit.